Old Mutual Limited

Bruce Hemphill - Group Chief Executive, Old Mutual Ralph Mupita - Chief Executive Officer, Old Mutual Emerging Markets Ingrid Johnson - Group Finance Director Paul Feeney - Chief Executive, Old Mutual Wealth

Greig Paterson - KBW Jon Hocking - Morgan Stanley Lance Burbidge - Autonomous Ravi Tanna - Goldman Sachs Risto Ketola - Standard Bank Brian Mushonga - Credit Suisse Andy Sinclair - Merrill Lynch

Good morning, everyone. And in fact, it’s good afternoon to those of you in South Africa.

Welcome to everyone here in the room with us in London and to those in Johannesburg as well as everyone on the phones and watching on the webcast. Let me check that the connection to Johannesburg is working.

Ralph, you are hosting there. Can you hear us?

Hi, Bruce. I can hear you loud and clear.

Fantastic. You heard me.

I am wondering if IT had caused another drama for us. Ingrid Johnson, our Group FD is here with me on the stage.

And we also have a number of senior execs in the audience both here and in Johannesburg. We have made a significant announcement on strategy this morning alongside 2015 results.

So, I am going to start by talking about that. I will then talk about the strength of our businesses as illustrated through the 2015 performance before handing over to Ingrid to review the group financial results.

I will finish with some concluding remarks, after which we will open it up to questions. When I was first approached about becoming Chief Executive of Old Mutual, what particularly attracted me was the strength, market position and growth potential of the four underlying businesses which the group had created through its investments and actions over the last few years: OMEM, a leader in African financial services; Nedbank, with its corporate and financial strength; Old Mutual Wealth, really well positioned in the vast UK market; and OMAM, a focused institutional asset manager with a unique model in the largest asset management pool in the world.

And as a competitor of the group, I have seen it evolve through a number of phases. And although it was clear to me that the underlying businesses were strong, the group has consistently traded at a substantial discount to its peers and to its sum of the parts valuation.

So, my challenge was therefore clear. And since I joined on the November 1, I have overseen and concluded a comprehensive strategic review with the object of driving shareholder value and ensuring the continued success of our businesses by helping them to achieve their full potential.

Now, this has been an exhaustive and rigorous process using both internal and external resources. We have looked across every aspect of our business.

We reviewed the individual businesses in terms of their strategies, market positioning and growth potential in their markets. And we have analyzed the value that is added through the group construct and whether the existing structure hides, helps or hinders the businesses in pursuit of their respective ambitions.

And it was important to us that we worked out what was right for the individual businesses and only then looked at what that meant for group as a whole. And our analyses have taken into account the range of factors and criteria both internal and external and the slide shows our key considerations.

For example, we used external experts to review the businesses to understand whether they are on a path to achieve leadership economics in the medium term. Our objective throughout the process has been focusing on shareholder value creation.

And having gone through this process, we reached some clear conclusions. Firstly, that we have four strong businesses that are capable of standing alone that there is no compelling strategic logic for combining them in a group and that the current configuration is unlikely to deliver the desired outcomes.

In short, that the long-term interest of stakeholders will be best served by separating our individual businesses, Old Mutual Emerging Markets, Nedbank, Old Mutual Wealth and Old Mutual Asset Management. As a result, we have developed a new strategy, which we are calling a managed separation.

So, this is the journey we are now embarking upon and let me talk you through the current state, the end state and how we are going to get there. As we have concluded, our businesses are strong, with clear strategies and excellent growth prospects.

In truth, there is very little commonality or synergy between them. They have different types of customer with different requirements.

They sell different products which don’t necessarily transfer between geographies and those geographies are at different stages of development. There is limited rationale for a combination that we have in the group structure.

And there are costs associated with the group structure which aren’t justified by synergies or other benefits. Regulatory changes in all our jurisdictions are increasingly adding costs and complexity to all operations.

It’s clear that regulators are taking a cautious view of conglomerates. And looking ahead, the regulatory burden is likely to increase rather than reduce.

And there is a misalignment between shareholders and the assets that they really want to own. So, the group has served its purpose, but the structure is trapping value.

We have now reached a natural point of evolution where change is both required and possible. Our desired end state is four strong, but independent businesses which are well capitalized, able to build on their competitive positions and take advantage of the growth opportunities in their respective markets.

In this end state, the businesses will be delivering enhanced performance. They will be closer and more directly accountable to their public owners.

There will be better shareholder alignment. And this will give the businesses easier access to future capital and allow them to be better rated, because they will be owned by those investors who are best able to understand, invest in and value them.

The group in its current form will no longer exist. Some of the current central activities will need to be assumed by the independent businesses, but the level of cost will be substantially reduced.

The strategic relationship between Nedbank and OMEM will continue, but it’s clear that a majority shareholding in Nedbank is not necessary to achieve either party’s strategic objectives. And we envisage reducing our interest in Nedbank to an appropriate strategic minority position over time and we are working closely with them to determine the most effective method of achieving this in the interest of Nedbank and Old Mutual shareholders, as well as the wider South African financial services sector.

And we envisage that we will do this primarily by way of a distribution of Nedbank shares to the shareholders of Old Mutual and do not intend to sell any part of our shareholding in Nedbank to a new strategic investor. Our strategy to get from the current state to the end state is what we are calling the managed separation.

We are assembling a strong team to ensure we have got the right skills and experience to deliver this, minimizing execution risk and value leakage. And I am delighted that Paul Hanratty has agreed to stay on with us for a period of time as an essential part of that team.

His experience and corporate memory will be invaluable. We have identified several possible routes to separation, but there are many moving parts.

And we will ensure we choose the optimal route which best aligns the various interests and requirements of our stakeholders and balances value for shareholders against cost, acceptable risk and timing. The execution route may involve equity market activity, including for our subsidiaries that don’t currently have public listings.

And separation will inevitably be a complex process. We have to get the right sequencing and timing of events and there is a huge range of technical factors that we have to take into account, for example, the management of existing debt and regulatory considerations in the various jurisdictions.

And we intend to give more clarity to the market on our intended route later in 2016 following more extensive engagement with stakeholders. And over the next couple of years, the primary role of the PLC will be to drive this process.

And we will take more active role in the efficiency of capital allocation and we will work with the businesses to drive enhanced performance. We will discontinue head office activities that are no longer required and manage the reduction in central costs.

We will continue to fulfill the PLC’s ongoing regulatory obligations and manage the group’s debt obligations and distributions to shareholders. We intend to reduce holding company debt materially.

And for the period of the separation, we will adopt a capital management policy that will give us the flexibility to pay an appropriate dividend to shareholders whilst paying the costs of investment in our businesses, the cost associated with the separation, reducing debt, and managing our costs through what we expect to be reasonably volatile markets. And subject to the repayment of debt, there maybe scope for additional returns to shareholders.

And Ingrid will talk more about the capital management policy in her presentation. Now, we expect the separation process to be substantially completed by the end of 2018.

And as you might expect, at this stage in the process, there is a limit to how much detail I can go into, but I wanted to talk to you as early as I could about the conclusions of the strategic review and our decision on where Old Mutual is going. And I will update you on this further in the year.

I want to finish my section on strategy with this slide, which I think is useful to illustrate how we are looking at the creation of value and note that the size of the blocks on the chart are purely for illustration. In essence, in the left-hand column, we have got four – we have got blocks of positive value, four business units and central assets.

Then in the right hand column, we have got blocks of negative value, head office costs, PLC debt and the conglomerate discount. And our strategy is aimed at delivering value to shareholders by increasing the positives and decreasing the negatives.

Some of this is within our control from the actions we take driving enhanced business performance, reducing head office costs and paying down holding company debt. The remaining value uplift will come from what we believe will be the outcomes of separation, valuation re-rating of the businesses once they standalone and can be properly valued by the market and the removal of the conglomerate discount.

At this point, I think we should move on to our 2015 financial results and I will come back with some concluding remarks on strategy at the end of the presentation. In tough markets, the group delivered another very strong set of results, continuing to demonstrate the strength of the underlying businesses.

And just look at the numbers. The underlying adjusted operating profit up 11%; adjusted earnings per share up 15%; over £6.5 billion of net client cash flows, if you exclude Rogge and funds under management, excluding Rogge, up 8% to £304 billion.

The Board has declared a second interim dividend of £0.0625 per ordinary share, bringing the total dividend for 2015 to £0.089 per share, up 2% on the prior year and up 25% in rand. Let me say a bit more about the individual businesses.

And of course, there is far more detail in the results announcement that we released this morning. Looking first at Old Mutual Emerging Markets, this is a really strong business.

You just have to look at the numbers. AOP was up 9% to ZAR12 billion, with strong sales, higher asset based fees and improved underwriting profits in mutual and federal.

Revenue growth was excellent, with gross sales up 17%. The businesses – the business has been working hard to put new products into the market and expand distribution and the results of that efforts are clearly being demonstrated through the top line numbers.

The business is generating great returns on equity of nearly 23%. And looking at just a couple of the markets, retail affluent, a really good year with gross sales up 19%, growing distribution capabilities in preparation for RDR and profit up 11%.

Mass foundation is looking very strong and we are continuing to build on our great market position. Like-for-like APE sales were up by 10%, in line with previous guidance.

And AOP was up 14%. Profit in Old Mutual Investment Group was lower because of some exceptional gains in the prior year, but I am really pleased with the performance against the leading indicators of investment performance, which improved across key equity and multi-asset funds and NCCF, which was excellent at ZAR7.3 billion.

In the rest of Africa, we added 1 million customers during the year and continued to grow distribution, increasing the number of tied advisers and leveraging our bank assurance relationship with Ecobank. The acquisition of a majority stake in UAP completed midyear and integration into Old Mutual Kenya is on track.

The team is focused on improving returns to match the acquisition case and deliver a satisfactory ROE over time. In summary, OMEM is clearly a very attractive business.

It’s got an immensely strong South African franchise, a growing footprint in the rest of Africa and it’s performing extremely well. Turning to Nedbank, they announced their results last week.

And Mike made his own presentation, which you can look at if you want to for more detail, but the bank delivered a resilient performance in a very difficult macro environment. Headline earnings were up by 10%, which translates into 7% growth in pretax AOP.

And this is largely due to growth in non-interest revenue, strong cost discipline and increased associate income from ETI. In terms of impairments, there were further improvements in the retail book but offset by increases in wholesale and some provision strengthening to reflect the deteriorating economic conditions.

The credit loss ratio improved over the prior year and the bank has tightened through the cycle of target range to reflect the change in advances mix. I think Nedbank is a very well-run business.

It’s generating decent risk adjusted returns and maintains a well capitalized balance sheet with common equity Tier 1 capital ratio of 11.3%, well within the bank’s internal target range. Moving on to Old Mutual Wealth, again the numbers tell the story.

It was an excellent financial performance. Excluding the 10 months contribution from Quilter Cheviot, AOP of £273 million was ahead of the £270 million target, which was a pretty ambitious target when it was set.

The businesses worked hard to capitalize on the opportunities in the UK market, in particular those created by the most extensive pension reforms seen in the generation. Following a marketing campaign and the launch of our flexi-access drawdown facility, pension sales were up by more than 50% and outperformed the wider industry.

We brought together the management of OMGI and Quilter Cheviot into a newly created investment division to integrate and leverage our combined investment expertise and capabilities. And this will generate both cost and revenue synergies, as well as providing enhanced performance for customers.

So overall, it was a good year for wealth. And clearly it’s a very, very attractive business with an incredible opportunity in what is a really vast market, but – and it’s fairly big, but this morning, we are also announcing a further delay and additional cost of the business in IT transformation program.

And it’s important to say that this was a fundamental business transformation and long-term investment in the adviser platform market which is vital to the business delivering on its potential and continuing to grow in this massive market long into the future. And I think it’s important to appreciate that context.

And what has become clear since you were last updated is that the complexity of the program and the inherent risks of delivery are greater than was originally envisaged. So towards the end of 2015, we brought in KPMG to carry out a detailed review of the program and as a result of which, we have made some significant changes which are aimed at de-risking delivery.

We have decided to adopt a phased migration approach, which means we will need to run parallel systems to ensure a seamless experience for customers and advisers. We plan for an increased level of testing.

And both of these add time and cost. And we are prioritizing delivery for the open books and are planning for delivery by mid-2018, with heritage implementation in 2019.

We have now brought in Accenture to review the scope, planning and implementation approach for the whole program. They came onboard just a few weeks ago.

And KPMG will continue with quality and delivery assurance. We are already a long way into the program and have spent over £170 million to-date.

And on the current plan, we are looking at a cost to complete of around £250 million, but we will come back to you at the interims with the outcome of Accenture’s review. The program cost will continue to be funded by Old Mutual Wealth, primarily from retained profits and some capital redeployment.

At the end of the implementation, we will have a market leading, flexible and scalable system with a modern front end. And we will be providing integrated services for customers and advisers across all wealth products.

And we will have changed the operating leverage in the business, enabling you to generate enhanced levels of return. And we are intensely focused on the quality of delivery and whilst any delay or cost increase is disappointing, I have no doubt that this is the right thing for us to do and so we better get it right.

Finally, on OM Asset Management, this is another important business, an active investment manager offering diversified strategies through the boutique structure in a profit share model. It was a tough year for this type of business.

Commodity prices and oil prices have come off and sovereign wealth funds have been withdrawing money from the markets. Excluding the first half exceptional performance fee, AOP for the year was flat, but investment performance was good.

And net flows, although negative are expected to generate positive annualized revenue due to higher margin inflows and lower margin outflows. I think management have done a great job in creating a business that is notably differentiated from its peers.

It’s well positioned in this market and is in a great place to take advantage of many opportunities. So as you can see from the group’s results, these are four very strong businesses.

They are all performing well in very difficult markets. And at this point, I am going to hand over to Ingrid, who will take you through the financials in more detail.

Thanks Bruce and good morning or rather good afternoon to those in South Africa. In my presentation, I will start with the macro backdrop for our key markets.

We will then go through group profit and returns, conversions and uses of cash, debt and capital, dividend and our new capital management policies. Let me begin with the macro background.

Equity markets were very much a tale of two halves. The FTSE 100 and JSE All Share reached record highs midway through the first half and in the second half saw a significant increase in volatility.

Market levels contributed only £0.4 billion to 31 December funds under management of £304 billion, excluding Rogge. The rand weakened against sterling by 27% over the year and the average was 9% weaker than 2014.

The effect of currency translation on funds under management was £5.1 billion negative. The IMF expects GDP growth in the U.S.

and UK to remain broadly steady in 2016 and growth in sub-Saharan Africa to increase, but the South African economy continues to face significant headwinds. The IMF is predicting 2016 growth of less than 1%, challenged by lower commodity prices and demand, electricity supply constraints, high level of unemployment and severe drought conditions, particularly in key food producing areas.

Upward rising interest rates and rising inflation will increase financial pressure onto consumers, although lower oil prices should continue to provide some respite. Due to this outlook, we are encouraged by the recent dialogue between government and the private sector in South Africa with the aim to reducing the risks of a sovereign downgrade.

The dialogue has already led to a number of changes and announcements from the President and the Minister of Finance. Within that context, turning now to our financial results and starting with the group P&L.

The sum of business unit AOP stated before tax and non-controlling interests was £1.8 billion, up 5% on a reported basis and 11% in constant currency. Finance costs increased by £5 million to £83 million.

This reflects the debt issuance of £450 million, which more than offset the redemption of £374 million Eurobond which took – both of which took place in November. Other central costs increased by £17 million, of which as highlighted at the half year, Solvency II costs accounted for £10 million.

Linking to our new strategy, in our end state businesses, which in aggregate generated £1.8 billion of pre-tax profits in 2015, will not have the drain of £162 million of cost for group debt and central activities. The effective tax rate reduced to 24% from 27%.

This is due mainly to the ETR of Old Mutual Emerging Markets returning to the South African statutory rate of 28% after being higher in the prior year. The ETR with Nedbank also reduced as a result of higher level of low tax associate income from ETR in 2015.

The movement in non-controlling interest reflects the acquisition of UAP, the initial and secondary public offerings of OMAM and the change in ownership of Old Mutual Finance. Total AOP post-tax and non-controlling interest was £931 million, up 14% in constant currency.

On a returns basis, this is equivalent to a 14.2% return on equity at a group level, within the group’s target range of 12% to 15%. The table shows through two lenses how shareholder equity is deployed across the group.

The first lens is when we exclude intangibles from the individual business units to reflect the underlying capital usage and you can see that they are generating good returns, yet we have incurred around £2.5 billion of intangibles to access these returns. And from a shareholder’s perspective, it is important that we also generate satisfactory returns on that money.

When we look through the second lens with intangibles allocated to the individual businesses, returns are still good, but there is work to do to enhance them. Since 2014, we have deployed £1.2 billion of capital on acquisitions in structurally attractive markets with good growth prospects.

Looking purely at the acquisitions without the adjacent benefits that are reflected elsewhere, for example, in wealth, the platform profits that are generated from sales in Intrinsic, those capital is currently generating a 6.4% return. Whilst we recognize that returns from acquisitions take some time to come through, 6.4% is well below our target range.

And each business is focused on ensuring that appropriate returns are delivered in line with the original investment case. Adjusted group net asset value per share at 31 December was 178.9 pence.

The value of Old Mutual Emerging Markets and Old Mutual Wealth has increased, but adjusted group NAV is lower than 2014 primarily driven by currency translation effects and the lower share price for Nedbank and OMEM. Looking now at the conversion of business unit profits to free surplus and cash at the PLC, in total, our businesses generated £945 million of free surplus, equivalent to 88% of AOP.

The reduction from 91% in 2014 is largely attributable to Old Mutual Emerging Markets as a result of a one-off actuarial methodology change, but note that this change does not impact the level of cash remitted to the PLC. Of the free surplus generated, £452 million was either deployed or retained by the businesses for organic and inorganic investments.

In Old Mutual Emerging Markets, free surplus retained relates principally to the acquisition of UAP and CGIC and also reflects cash held to fund loan growth in Old Mutual Finance and funding requirements of the Rest of Africa, Latin America and Asia. For Old Mutual Wealth, it includes the 2015 spend on the transformation project, which was £97 million pre-tax, as well as investment in distribution through the Sesame Bankhall and the Singapore-based AAM Advisory transactions.

Despite the impact of lower average exchange rates for our principal operating currency, total cash remitted to the PLC was higher than in 2014 at £493 million. Now, to look at the deployment of cash at the PLC, as you are aware, we are only allowed to use rand remittances to fund the group dividend, while interests and other central costs after recharges can only be funded by hard currency remittances and PLC cash.

Prior to 2014, rand remittances were closely matched to the total group ordinary cash dividends and hard currency flows were more than sufficient to fund the interests and other group costs. However, in 2014 and ‘15, we recognized that at this point in the investment cycle, the businesses needed to retain a higher level of cash for strategic initiatives and also for capital strengthening.

We therefore decided to run a hard currency operational deficit using PLC cash to fund the balance of group cost and dividend that was not covered by the business unit remittances. The need to use PLC cash will continue due to higher than planned investments, specifically in Old Mutual Wealth; the lower shareholding and dividend policy in OMAM following the IPO and secondary sell-down; and the need to fund costs through the managed separation.

As a consequence, as Bruce has already mentioned, we are introducing a revised capital management policy for this next period, which I will talk to you later in my presentation. To finish on the slide and bringing everything together, the PLC closing cash balance at 31 December was £750 million.

Turning now to liquidity and debt, including the PLC cash balance and the revolving credit facility, of which a full £0.8 billion is undrawn, liquidity at 31 December was £1.6 billion. Our liquidity levels are more than adequate in the context of normal operating activities and to withstand severe stress events.

This is true at both the group and business unit level. At 31 December, on an IFRS basis, the group had £1.7 billion of gross debt, excluding banking related debt and gross gearing of 15.8%.

The increase from the prior year reflects the net debt issuance of OMLACSA and PLC. Gearing and interest cover ratios remained at levels with which we are comfortable in an overall group construct.

However, execution of our strategy will result in a material reduction in holding company debt. The chart at the bottom of the slide illustrates our first call debt maturity profile, with £112 million of senior PLC debt maturing in 2016, along with £18 million of debt within OMEM.

We have no near-term refinancing requirement at the holding company until 2020 having funded the PLC maturity in 2015. Moving now to capital and starting with FGD, which we are disclosing for the last time as we move to a Solvency II world.

Our group FGD surplus at 31 December was £1.7 billion with a statutory cover ratio of 160% compared to a surplus of £2.1 billion and a cover ratio of 164% in the prior period. Note that, although the weaker rand reduced the overall level of surplus at the 2015 year end, it added around 4% to the coverage ratio due to the relative mix of rand-denominated FGD requirements and resources.

As the waterfall chart depicts, our capital strength has allowed us to continue to pay an ordinary dividend from statutory profits and reserves as well as investing for future growth. In terms of Solvency II, we are confirming today that, as we have guided throughout 2015, our reported levels of surplus and coverage under Solvency II are lower yet more resilient than under FGD.

Our Solvency II surplus at January 1, 2016 was £1.6 billion with a cover ratio of 135%. We now have clarity on the methodology, which the last time we reported to you, was not the case.

There are a number of points that you should consider when looking at our calculation and particularly when attempting an almost impossible comparison with our peers. Firstly, we have adopted the standard formula rather than the internal model, which many of our peers are using.

This is in line with the approach that will be taken in South Africa under the SAM regime. The strict Solvency II rules on fungibility and transferability of capital means that we cannot recognize the surplus of £800 million in South Africa.

These capital resources contribute zero to the group surplus and are included in the group position at a solvency cover ratio of 100%. To help you with the comparison, applying the same restriction to FGD would result in an FGD cover ratio of 133% at 31 December 2015.

We are also not allowed to recognize just under £100 million of surplus in Old Mutual Wealth. Our method of aggregation is conservative.

Insurance entities in Bermuda, South Africa and the Rest of Africa use the deduction and aggregation methodology, which does not allow for the recognition of any diversification benefit with the rest of the group. All other insurance entities are included under the consolidation method, which does recognize benefits of diversification within each geography.

Note that the basis of inclusion for both OMEM and Nedbank is essentially unchanged from FGD. Finally, other than the grandfathering of debt in issue prior to 2015, we have not relied on the use of either discretionary or mandatory transitional measures nor made use of the matching or volatility adjustments.

You can see from the chart that under the new regime, our capital requirements are substantially higher than under FGD, £4.4 billion compared with £2.9 billion, for the same risks, yet under both regimes, the group surplus is similar due to the restriction on surplus under Solvency II. It is important to remember that the new regime is about how capital adequacy is assessed and reported to the regulators.

Nothing changes our actual capital position, nor where the risks lie and how they are managed. We remain confident that we are appropriately yet not excessively capitalized under Solvency II.

Finally, a word on economic capital, the calculation recognizes full diversification of capital across geographies and entities and recognizes OMEM at an economic value which is higher than the tangible net assets. Our group economic capital ratio at 31 December 2015 was 229%, little changed on the prior year.

Economic capital is a very relevant measure in a group construct, but in the context of the new strategy, we will reconsider the relevance of reporting on this basis. Here we show how Solvency II ratio moves in response to a number of single variable stress scenarios.

And you can see that there is very little movement in either the group surplus or the coverage ratios. The resilience of capital is largely due to the nature of the businesses and is also attributable to the exclusion of the South African surplus.

The latter point also explains account interest of impact on the ratio of movements in the rand, where a weakening of the rand strengthens the ratio and vice versa. We carry out regular multivariable stress and scenario testing at group and business unit level.

This helps us to understand and monitor the resilience of our capital and capacity to pay dividends. We have also carried out a severe scenario testing for a South African sovereign downgrade together with significant falls in all equity markets and are confident that our capital remains resilient under that scenario.

This is the case for our group, both in its current form and also for any of the routes we would consider using to execute the managed separation. On a local basis, each individual business has strong and resilient local statutory cover.

And they have sufficient local capital to support their normal trading operations and withstand extreme stress scenarios. Note that, on a Solvency II basis, Old Mutual Wealth, which is primarily unit linked and does not write annuity business, is well capitalized with a pro forma coverage ratio at January 1 of 181%.

The important point to recognize is that the businesses have sufficient strengths to be able to invest at the same time as contributing to group shareholder dividends. Let me now turn to dividend.

Following the implementation of Solvency II, final dividends are no longer subject to shareholder approval and have been renamed as second interim. Similarly, interim dividends will be renamed as first interim.

In respect of 2015, the Board has declared a second interim dividend of 6.25 pence per share. This brings our total ordinary dividend for 2015 to 8.9 pence per share, which is up 2% on 2014 and represents a cover ratio of 2.17x AOP earnings, within the target range specified in our existing policy.

The conversion to other currencies is based on exchange rates at March 9. And on net basis, the full year increase for shareholders on the South African register is 25%.

As we are no longer required to wait until our AGM for shareholder approval for the dividend, we have chosen to bring forward payment to April. The current dividend policy was set for a period in which the business was pursuing a strategy of de-risking and simplifying.

We are now moving on to a new strategic path with new demands for cash. And accordingly, we have revised our capital management policy.

The policy will be applied during the period of the managed separation and takes into account a wide range of complex considerations. During this period, we will pay a dividend that reflects the operational cash generation, investment and liquidity needs of the group as well as the capital requirements of the underlying businesses.

We will target a dividend cover equivalent to 2.5x to 3.5x group AOP earnings. This range will enable us to maintain flexibility to preserve cash during this period of continued strategic investments, volatile markets and a weaker rand and to pay the costs associated with the managed separation.

The first interim dividend will be based on cover of 3x group AOP earnings in the first half of the year. Our intention is that, for the next 3 years, we will pay an appropriate dividend balancing all considerations.

On completion of the debt repayment process, the Board will consider whether there is scope for additional returns of capital to shareholders. There has been a lot to take in today in terms of information and so to summarize the group delivered another good financial performance in 2015 notwithstanding challenging macro environment.

AOP was up 11% in constant currency and local profit growth was strong. We do face macro headwinds in 2016, most significantly the impact on sterling reported results from continued rand weakness and lower average markets which put pressure on asset-based fees.

We have a strong and highly resilient balance sheet maintaining appropriate and prudent levels of capital, liquidity and gearing at both the group and business unit level. We have announced a new capital management policy for the period of managed separation.

This will ensure we continue to pay an appropriate ordinary dividend, balancing complex considerations. That concludes my presentation this morning as I hand back to Bruce.

Thanks, Ingrid. Let me pull things together and then we can take some questions.

So, we have announced a strong set of results for 2015. And we have also announced a new strategy based on the findings and conclusions of what I think is a very comprehensive strategic review.

It’s absolutely clear. You just have to look at the numbers that we have got four strong businesses delivering very well in difficult markets.

They have got great opportunities and are competitive and are very well positioned in each of their respective markets, but there is no compelling strategic logic for the current group structure. And in fact, that structure is both costly and a constraint on growth of the underlying businesses.

And the creation of four independent businesses will unlock considerable value by removing the downside of the current structure. It will release energy and enable those businesses to achieve their full potential by freeing them from the group structure and the group construct.

The route to execution will be complex. We will choose the optimal route which best aligns the various interests of stakeholders, taking into account value, risk, time and cost.

It will be substantially completed by the end of 2018. And finally, this is a pivotal moment for Old Mutual as we embark on a new course to unlock value.

It is absolutely the right thing for us to do. I am excited about where we are going and I look forward to talking to you more about our plans and our progress later in the year.

So, thank you for your attention. Ingrid and I will now be happy to take questions.

And for those of you in London and Johannesburg please wait for a microphone to come to you before you ask your questions and please start by giving us your name and your company. And let’s start with questions from London.

Good morning, Hello, Greig Paterson, KBW. Three quick questions.

One is out of the announced plans by the South African government to try and control its budget and your high exposure to the industry, your Mass Foundation Cluster, I wonder if you could mention some guidance in terms of where you see volumes in that business line over the next 3 years. I know there is a government employee contract for salary escalations, but sort of post that date, what system we have?

I think that’s a 3-year deal. So, one would anticipate that to remain in place for the 3 years.

And thereafter, I would imagine the government will keep a fairly tight rein on those costs. So, I would anticipate those being reasonably flat thereafter.

Alright. And is that a serious headwind for ‘16 and ‘17?

No, I don’t think it’s a serious headwind. We need to keep driving those businesses and we keep competing.

Okay. And then I have two other questions.

One is in terms of South African life operations, is it – could you envisage a scenario where you merge with a peer or would the concentration of risk be too large for and unacceptable to the regulators?

Yes, Greig, I mean, I will venture a response and maybe Ralph can chip in, but my view is that it would be – I think it would just be too big a transaction for the regulators to contemplate. Ralph, I don’t know if you have a view on that?

Yes. I mean, Bruce, I certainly agree with you on the latter question.

I mean, this is a significant life company in South Africa. So, you and I are aligned with that one.

And on the first question around the macro in South Africa, I mean, certainly, it is going to be more challenging. Growth prospects are lower.

We have a competitive position within the mass markets. And we have a particular operating model which gives us resilience, productivity and better growth prospects that are larger, I believe, than our peer group in the way that we go through our Old Mutual Finance distribution network, which has got productivity benefits and as well as persistency benefits.

So, we certainly aren’t talking about the growth side, but I think we will certainly be looking at focusing on value going forward in that mass market business.

And then just one last question, when you quoted that Old Mutual Wealth Solvency II number of 181%, is that assuming that their internal loan for the Quilter acquisition is paid back or does that include that amount of assets?

I mean, it’s just part of our intercompany group construct. So I mean we could have actually capitalized the business, so it’s not really relevant for the calculation.

So, is it assuming that, that loan exists anymore? I mean I am just trying to figure out, is it 181% or is it 81 – or 81 minus internal loan or?

No, I mean, if you wish to have a more technical response, I can offer that to [indiscernible], but...

Well, what I would suggest is just can we take it offline and get back to Greig with the detail. There is a question here in the front.

Jon Hocking from Morgan Stanley. I have got three questions, please.

Just in terms of the comment you made about sort of the group no longer existing. The holding company in the UK, the PLC, is intention there to get the debt down to the point where it can be sustainable mutual wealth or is that PLC holding company going to disappear entirely?

It’s the first question. And then secondly just on the comment about sort of ruling out selling the main stake in Nedbank to a strategic shareholder.

Aren’t you ruling out that getting value to controlled premium for Old Mutual shareholders? Isn’t there some sort of value give up there while making that statement?

Thanks.

Ingrid, do you want to deal with the first one?

Yes. So in terms of the debt, I mean – I would have always mentioned that we are comfortable at the current levels.

You can then look at the underlying business units and you would have seen activity in both OMLACSA with debt issuances in the last few years as well as in OMEM. And the wealth business would typically not be that highly geared.

And what we have said is we want to set the businesses up for success to compete effectively in the end state. So clearly, the level of debt that you would wish to have will be dictated by the underlying cash generation of those businesses and in turn we would then look in terms of a holding company position.

And as there would be asset realizations or some form of means of distribution, we would need to extinguish the debt first before actually actioning any other form of distribution. So, it’s very much recognizing all the competing interests and our bondholders are important to us as much as all other stakeholders.

And on the second question, I mean, yes, you are right, I think that it’s highly unlikely that you are going to find a buyer for that sort of size stake in this environment anyway. And the prices that you will get for these banking assets are at this stage I think at historical lows, so the wrong time to be selling.

Best to pass it back to shareholders. Yes?

Good morning. It’s Lance Burbidge from Autonomous.

Couple of questions. Firstly, on I guess what you might call the disintegration costs could you give some idea as to what we are talking about?

I guess we can try to back it out from the new dividend policy, but maybe you have some idea, but maybe it’s too difficult. And then on the contract, in terms of the IFDS technology contract, could you give a bit more detail in terms of what actually has gone wrong and is this now the maximum that it will be and maybe we might come in lower than that?

Okay. Yes, on the – sorry, the first question...

The cost of separation.

The costs, yes, the cost of separation, look, I mean, there is still a – I mean it’s a complex set of transactions. And I would be loathe to stand up here and say this is what it’s going to cost, because I do believe I would be holding myself hostage to fortune.

So, I don’t want to commit to that now. And on the question of the IT costs in wealth, I mean this is – it’s a very, very complex project.

It needs to be simplified and it needs to be de-risked and that is going to take time. It’s going to require significant additional testing.

I am comfortable. I am reasonably comfortable that those are the right numbers.

I want Accenture to do some more work, but clearly I am going to be focused on putting pressure on the management team to deliver this thing quicker and at lower cost. And I think it would be worthwhile getting a comment from Paul Feeney, who is in the front row here.

Sure. I think that’s exactly right, but our job in wealth is to ensure that we deliver this quicker, safer and cheaper, but now I have got a brand new spanking Chief Executive here.

I don’t want to stand up here and have to stand up again in 6 months time and say different figures. So, we are putting in place a price and a time that we feel comfortable that we can deliver within.

At the same time, I would say two things, one is the platform. We can talk about the platform.

If – we said 250 million last time. Now, we are saying it could be another 150 million to 200 million more than that.

That’s three projects. It’s the heritage book, which is the closed insurance book.

That’s about 70 million of that. It’s the front-end system which goes across the lot.

That’s about 70 million of that. And it’s the operating platform [indiscernible], which is a core Wealth platform, which is about 70 million.

So, about a third, a third, a third. So, we have options, guys, okay?

The core thing to deliver is the wealth platform. That’s our focus, okay?

So, we have got options. Secondly, in terms of IFDS, if we get near those costs, IFDS is going to be paying a hell of a lot bigger chunk of those costs.

And we have renegotiated that. Thirdly, when we set out on this journey in 2013, we envisaged what our volumes would be.

We were selling about £2 billion, just shy, about £1.9 billion net. And it was pure platform sales because our books were – our other areas were closed books in insurance, okay, in 2012.

This year, we have sold £8 billion. Now, that’s after £1.1 billion of Heritage outflows, okay?

That’s 400% increase in 3 years. And I am sure the figures aren’t quite like that.

I think it might be £7.9 billion or £2.1 billion, but that’s effectively where we are at. And so let’s put that in there – if we put that into rand, the £8 billion, we are selling ZAR180 billion net of mutual funds.

All of that is retail. We don’t do any institutional.

We are selling ZAR0.5 trillion of mutual funds sales in gross a year now. These are huge step changes, £20 million, £21 billion of mutual funds sales compared to where we – well, certainly compared to where we were and actually compared to where we thought we were going to be.

And that’s why we have the business that is delivering the profits and returns on equity, the margin that is now delivering. We have started – I am not sure I am allowed to say how we have started the year.

Well, I think you should stop bringing, yes. Just you have done a great job.

No, I am joking. Carry on.

So, I think in those areas, we have got – things were bigger than we thought they were going to be, okay? And things are more complicated than we thought we are going to be, we are going to chunk the program, like Bruce has said, those three areas.

We are going to focus fundamentally on the platform. We are going to get it in quicker, cheaper and safer.

Thanks, Paul. Does that answer the question?

Yes.

Thank you. Well, your questions will get polled to us.

Yes?

Good morning. Thank you.

It’s Ravi Tanna here from Goldman Sachs.

Good morning.

Good morning. Three questions for you, please.

The first one is on Solvency II, I appreciate that Solvency II isn’t a binding constraint at all for cash, dividend remittances etcetera, but if I look at the Solvency II surplus, there is £1.6 billion gross debt, much of which you hope to repay is £1.3 billion. I am just trying to get an understanding of how much of that is qualifying owned funds as owned funds under Solvency II.

And if – as the rate in the group ratio trends from 135% down towards closer towards 100% are there any circumstances under which that becomes any kind of constraint or whole thing to be concerned about? And the second one is somewhat related, if you could perhaps give us a sense of the thinking behind the raising of the debt in November last year, clearly just ahead of Solvency II, but I am just wondering, were they at that stage there were thought processes around de-leveraging and how those considerations were made and decisions taken?

And the third one is on cash remittances, remittances from OMAM are clearly above – or let me put it another way, remittances from OMAM are at 63% of AOP. I am just wondering whether we should expect those to trend down towards 25% in line with OMAM’s payout ratio over time?

Thank you.

Thanks, Ravi. Ingrid?

Happy to. So certainly, on in terms of qualifying debt, there are some more detailed slides in the appendix.

So, we have £6 billion of own funds, of which our Tier 2 debt contributes £1 billion towards that. So that would be the first aspect.

Certainly, in terms of capital management, we think about accessing both equity and debt markets. And you would have been aware of our £374 million – €374 million bond that was maturing.

And when you actually assess the needs of the group and the low level of gearing as well as just what made things, that we are certainly at the time of worthy of renewal and raising a £450 million bond, 10 years, one of the early Solvency II compliant bonds and was 4x oversubscribed. So again, that was part of our capital management.

And if you look at the group construct, very much relevant and important as we go through this managed separation. In terms of the payout ratio, it should actually over time trend down to 25% and that’s really reflective of the deferred tax assets that we do have that you would see that unwind over the next few years.

Okay, thanks, Ravi. Are there – Ralph, have you got questions from Johannesburg?

Yes, Bruce, we have, Risto. Should we start with you?

Bruce, it’s Risto Ketola from Standard Bank. Three questions.

I will start with the first one, because they are the nasty ones. So, there is an FCA investigation named Mutual and Abbey Life for further investigation.

I am just wondering how serious is that for the wealth business?

I know there is a time delay here. So, we will deal with one question at a time.

So obviously, any investigation is serious and needs to be treated as such, but clearly, if you are in financial services and you have historic books of business when people are looking back and applying the TCF principles that have been adopted, there will inevitably be problems that get picked up. And so whilst it’s not at all welcome and we are not proud of it, it is one of the risks of doing the kind of business that we do.

And Paul, I don’t know if you want to comment a little further on that?

I will try and be a bit more succinct at this time, but I think – no, I think you are right, Bruce. We take it very, very seriously.

I mean, our first priority right now is to be constructive, productive, open with our regulators to resolve this issue. It’s an industry issue.

It relates to obviously our closed book of business. The investigation that is so far related to products sold before 2000.

We are a completely overall different business today than we were back then. Of our £100 billion odd at the end of the year, £104.5 billion, probably about £6 billion related to our closed book of business.

Yes, we take it very, very seriously. We are one of six firms that are presently being looked at, but the industry – the regulatory is also liaising across the industry right now on this issue, so...

Yes. So I think – and Risto, I think we are – it is the subject of an ongoing investigation.

And I think we should kind of leave it there. Okay, your next question.

[indiscernible] sort of clauses where if you dispose of major assets, they need to be redeemed early? So, that’s the first question.

And the second question is obviously in Old Mutual Wealth your possible exits are either sale or listing, would you say it’s a 50-50 between those two at this stage?

Okay. Risto, your first question I think is related to – it’s a debt question I think.

Could you just repeat it, because you got cut off halfway through it.

I was just asking that if there is a disposal of a major asset by PLC, does it trigger that earlier redemption of the bonds?

What – I was just worrying with the time delay. I think clearly, I mean, this is part of our consultation process in terms of the arrangements of underlying bonds, but clearly, we have our debt arrangements relative to the strength of construct of the group.

And we have stated that as clearly you would have asset realizations, you would wish to reduce your bond holding.

And Risto, your second question was sort of a betting question and the big thing about today is we have announced a fundamental change in strategy. There are a number of different routes that we can explore to achieve the implementation of that strategy.

And we now need to engage with all of our stakeholders to decide what is the optimal approach to execution and we clearly have the opportunities that you identified, but I think it would be foolish for me to stand here and say that it’s a 75% IPO as opposed to a 25% sale. So, you are right, we have those options and I am going to leave it at that.

Any further questions, Brian? Brian Mushonga.

Asking Bruce, two questions, please. To what extent has the change in dividend policy been driven by the increased cash expenses in the Old Mutual Wealth business?

And the second question is there a need to retain the Heritage book in Old Mutual Wealth just given the increased expenses and the drain on capital from that business?

Thanks, Brian. I mean, let me be clear.

On the – what we are calling the capital management policy, it’s not driven by any change related to Old Mutual Wealth specifically. We actually have a couple of things.

We have to manage an enormously complex process of separation in very volatile markets. We have to continue investing in the businesses.

And we need to continue paying appropriate dividends to shareholders. And we are adopting a conservative approach to that, because we want to get it right.

So it’s you can’t link it directly to the ongoing expenses in Old Mutual Wealth. Your second question was is there a need to keep the Heritage business?

Paul Feeney and I probably have a slightly different view from one another, but look it’s an option that we have. Clearly, there is demand for those books of business.

And if you take a much longer term view of the business, it’s not at the heart of what this business does. So, it is an option that we have.

Other questions here in Johannesburg? Bruce, no further questions here in Johannesburg for the meantime.

There are a couple of questions that have come over the telephone. The first is, the press have speculated that Old Mutual Wealth has received bids from private equity, can you comment on whether this is the case?

Well, we haven’t received bids. And if we were to comment every time we received an expression of interest in the business, we would spend all of our time commenting.

So, our policy is not to comment on that. And clearly, as we go into this process, it’s likely that we will receive a lot of those.

So, we will continue to maintain the policy. The second is – and this is from Hanna at Moneyweb, Old Mutual merged with Nedbank shares will be widely held.

Will there be a shareholder of reference, i.e., another single shareholder with larger stake than Old Mutual? If there isn’t, presumably Old Mutual becomes the shareholder of reference and it carries the risk that comes along with that?

So I think we have said that we will remain a strategic minority shareholder. We have National Treasury support for that approach.

They have commented that they welcome it. They believe that we have conducted this in a careful and coordinated way with Nedbank.

And I think for the time being we should leave it there. There is a question, yes.

It’s Andy Sinclair from Merrill Lynch. Just two questions, if I may.

So firstly, I kind of feel that you are looking to perhaps invest a bit more in some of the business units than has been done over the last few years. Maybe I am picking that up wrongly, but I just wanted to get your impressions on what you are looking to invest say in Rest of Africa and what your ambitions are there and also how that might affect remittance from each of the business units?

And secondly, if you are looking to invest further in Emerging Markets, what’s your thought on using debt to increase debt holdings in Emerging Markets to fund that as opposed to retaining cash?

Okay, I think I am going to pass that question on to Ralph, first one.

Yes. I mean we still have our intentions and ambitions to build out our business on the African continent.

We made a substantial acquisition in East Africa with UAP and bidding that down. So, in that part of the world, our focus on execution and creating value and generating the returns that we spoke about last year over the next 5 to 7 years.

So, that’s the focus in East Africa. And then West Africa, we have got two small businesses and they have done pretty well for us over the last 2 years, but they are small.

So over time, we would like to have a slightly bigger franchise than we currently have. We are not in any rush there at the moment and we will take our time accordingly, but we would like to see that part of our business a little bit more significant.

And then coming back to South Africa, I mean, South Africa are in the business where we have got a strong market position and good franchises, but we are also in a cycle where we are looking to invest in technology and improve the way customers engage with us, both customers and distributors. And we will be investing over the next 3 years in some IT developments, a new retail product administration platform for our risk business and also just making our business more digitally enabled.

So, those are the two kind of main areas. We certainly have an option which we will look at in time about whether we do or don’t go follow our rights in terms of the changes in India, but that’s something that we will think about certainly over the next while.

Thanks, Ralph. Ingrid, do you want to pick up the debt question?

So, if we then look at remittances and the underlying debt. So clearly, the remittances have been struck on the basis of dialogue with the underlying businesses to understand their growth aspirations.

And that’s really the big shift that Old Mutual has shown vis-à-vis pre-2014 where we are very much a growth engine. We see opportunities in our market and we have been investing significantly in how we then funded that.

Generally, we sought to either do it through our own cash reallocation within retentions or some capital redeployments. And if you then look at the overall debt construct of the group, we are actually very comfortable at a group level.

And as I mentioned in the presentation, if you then go to the underlying businesses, they are actually all reasonably positioned in terms of their gearing levels. So, there maybe a little bit that the underlying businesses may wish to do, but we really do want to set them up for success.

And in effect, that means how you think about the group debt. I mean you can apply your minds to what that could mean.

I mean, just about the Latin American businesses, I just wonder if that’s something that could also be considered being separated off and if that gets separated off whether you will be able to access that cash to get that back to group level or if that is – will be in emerging markets? Thanks.

Two questions there. The first is would we ever consider disposing of those assets?

I think that’s in emerging markets part of OMEM, Old Mutual Emerging Markets, certainly from my perspective sitting here, something one could contemplate, but it would be interesting to get Ralph’s perspective on that.

Yes. I mean, Bruce, as you say, I mean, it’s something one can always contemplate.

We have made no decisions about what’s in and what’s out in the medium to longer term in any of our businesses in emerging markets. And we all reserve the right in time to make some of those decisions, but there is no decision as part of this strategic review that it says we will be in and out of any markets.

Okay, thanks, Ralph. And the second part of the question was if we did decide to do that, could the cash come up to group.

Ingrid?

And that’s actually the Old Mutual Emerging Markets that owns LatAm, so effectively that would strengthen the underlying capital position of Old Mutual Emerging Markets for them to consider how they would redeploy that capital or in turn if they had no need to be able to continue to invest, then clearly that would enhance their dividend paying capacity to fund more of the dividend perhaps in time. But clearly, because we are on the growth path that we are on, I think that wouldn’t be something I would be looking to assume.

Greig, you had a question.

Thank you for coming back to me. Just two quick questions.

One is the terms of reassurance of the Accenture investigation, I wonder if you can give us some light there. And the second thing is I know you have only got a $100 million loan from the Bermudian operations, but once the Bermudian – or if that business gets split away and this is the group sort of covenant, will the Bermudian authorities not demand a greater solvency level in that sort of closed book?

I think the Bermudian liability is going to remain attached to the group until those liabilities run off, which will be 2018. So Ingrid, I don’t know if you want to add to that.

No.

And then the first question was Accenture, you are asking if...

What are they looking at?

Okay, they are – and we brought them in as the – as project managers for the whole overall project. Paul, do you want to comment on that?

Yes. Greig, we brought them in as project managers and systems integrators.

And their goal is to – as I said before to deliver this with us, for us quicker, safer and cheaper. And that’s what they are looking at.

Why did you say that there is potential – I am sorry, apologies, you caveat that the £425 million to £450 million major only, you must state your results of the investigation and potentially could go higher. That was the impression I got.

I mean, why is that? Is it because they have just arrived and you don’t know what’s going on or...

Yes. Well, they have on the job for about 3 weeks, I think.

So, I would like them to get their hands firmly around what’s going on there before they start giving you numbers, which are then going to prove to be half-baked. I think there is always that risk, but I would like to think it’s unlikely.

Okay, Ravi? Ravi needs a microphone.

Actually, it’s Ravi Tanna from Goldman Sachs again. Just one last one.

Thank you for taking the questions. It’s again back on a separate FCA investigation and the review that they are doing into vertical integration on the asset management space in the UK.

I am just curious to know what your broader thoughts are on vertical integration of the businesses. Clearly, that’s been a strategy in terms of acquiring businesses in recent years.

And going forward, in terms of the options, you are considering this Old Mutual listing. Are you precluded to an Old Mutual Wealth listing or sale or could you break it up into component parts?

I think – I mean I think the FCA is looking at sort of broader conduct issues. I am not sure they are looking necessarily only at vertical integration.

And obviously, vertical integration is central to what we believe as our competitive advantage. And clearly, one is to conduct your business in a manner which works for customers.

And we are very conscious of that and we try to make sure that that’s the outcome that we deliver for the customers. So, we would like to think that we have that particular conflict well managed and it shouldn’t be in any shape or form a hindrance to what we might choose to do with the business.

Paul, I don’t know if you want to comment?

I think that’s exactly right. And again, whilst we don’t go into what we do with our regulator, they have obviously just recently come into Intrinsic and of course, the closer to the customer, the greater the conduct risk you have.

And they have just come in and I have to say I am very pleased with the report that they have done with Intrinsic in terms of vertical integration and in terms of managing potential conflicts of interest, because the issue with vertical integration is simply managing conflicts of interest, potential conflicts of interest. So, as long as you do that, as long as you neutralize remuneration, as long as you have proper, strong governance along those lines, as long as you are clear with what you communicate to your customers, then you can manage that risk.

And that’s a risk which we manage and which the regulator so far, having come into Intrinsic, has been – I want to say happy. I won’t put words in their mouth, but I am happy with the results of their findings.

We have a question on the webcast from Richard, which is what is the mechanism for unbundling Nedbank to UK shareholders? Well, that’s a huge assumption that you have just made in that question, Richard.

And as I have said to you, we are going to come back to you later in the year with more detail around the routes whereby we will prosecute the strategy. And so I don’t think you should be assuming what necessarily what you have assumed in your question.

Alright, I think ladies and gentlemen, thank you very much for your time. We really appreciate you coming.

Johannesburg, thank you very much indeed. I hope you have a fantastic day and a lovely weekend.

Thank you.